Danielle L. Schultz, the principal financial planner of Haven Financial Solutions, is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a NAPFA-registered Financial Advisor, and a Registered Investment Advisor in the State of Illinois. She studied financial planning at Northwestern University’s Certified Financial Planner™ certification program. She also holds a Series 65 license (Registered Investment Advisor Representative) and a CCPS (Certified College Planning Specialist).

She writes a regular column for Better Investing magazine and is currently working on a revision of their mutual funds handbook. In addition to academic training and professional experience, Ms. Schultz has personally managed Social Security, Medicare, retirement and long-term care issues; college funding concerns; and cash flow and transition planning in self-employment and divorce situations. Her social work background gives her an innovative perspective on financial planning issues; for her, financial planning is not only about money, but also a key component in a satisfying and well-lived life.

If I had a euro for every time I’ve heard Social Security is going broke, I’d have decamped to Paris by now and wouldn’t be dispensing all this sage financial advice. C’mon guys and gals, if you’re old enough to even think about collecting Social Security (exception being my 18 year old who worries about this stuff), it’s going to be around for you. So then it comes down to—when to collect. Lately several people have posed the idea that they will collect it at 62 or 66 and invest the money instead of spending it. Aside from the fact that I’ll believe it when I see it, here’s a look at whether you’d actually be ahead. Sure, my example is filled with assumptions that you can disagree with, but play along here for a moment.

So let’s say you’re single, 60 years old, have an average annual salary of $100,000, and your full retirement age is 66. (It’s way more complicated for couples, so I’m not even going to get into that here. Call your friendly local financial planner—me!) Using the nifty little free estimator at AARP, your benefit would be $1,911/month at 62 ($22,932/year); $2,548 at 66 ($30,576/year); and $3,363 at 70 ($40,356/year). Okay, we agreed you’re not going to spend one penny of that money you start collecting at age 62, but are going to invest it in a half-way decent portfolio of no-load mutual funds that averages, let’s be generous in today’s market, 8% return. So on the face of it, you’ll have $255,822 more at 70, right? Nice chunk of change, no? Not so fast…

At a safe withdrawal rate from your savings of, oh, 4% a year from 70 onwards, your added portfolio will give you an extra $10,232.88 per year, or about $853 per month. So instead of collecting $3,363 from Social Security at 70, you’ll have an income of $2,764 per month—you’ve cost yourself $599 per month. That buys a lot of cat food.

Let’s say you collect Social Security at 66 instead—four years of saving and the same 8% return. Now your extra cache is $107,685. At that same 4% withdrawal rate, you’ve got $4,307.38 per year, or about $359/month, giving you a total of $2,270 per month, instead of the $2,548 you would have had. Maybe $278 isn’t that much, but multiply it over a 30 year retirement–better die quick.

But wait, it’s even worse. Social Security is adjusted for inflation. Your investments aren’t. So your actual Social Security payment is likely to be more, and the spending power of your savings is less ($101,014 at 66, $223,629 at 70, assuming 3% inflation). And oh-oh, you have to pay taxes on that Social Security if you’re still working. And taxes on your investment returns, unless they’re in a tax sheltered account. Another big hit. .I don’t think I need to run through any more numbers for you to see why not only do financial planners beg you not to take benefits at 62, but we really like to see you wait until 70, unless you have some serious medical problem that makes a different strategy compelling.

About the author

Danielle L. Schultz, CFP®, CDFA

Danielle L. Schultz, the principal financial planner of Haven Financial Solutions, is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a NAPFA-registered Financial Advisor, and a Registered Investment Advisor in the State of Illinois. She studied financial planning at Northwestern University’s Certified Financial Planner™ certification program. She also holds a Series 65 license (Registered Investment Advisor Representative) and a CCPS (Certified College Planning Specialist).

She writes a regular column for Better Investing magazine and is currently working on a revision of their mutual funds handbook. In addition to academic training and professional experience, Ms. Schultz has personally managed Social Security, Medicare, retirement and long-term care issues; college funding concerns; and cash flow and transition planning in self-employment and divorce situations. Her social work background gives her an innovative perspective on financial planning issues; for her, financial planning is not only about money, but also a key component in a satisfying and well-lived life.